CC Japan Income & Growth (CCJI) is managed by Richard Aston, who has a dual mandate of generating income and capital growth. Although CCJI is the only equity income strategy in the AIC Japan sector, Richard aims to find a balance between investing in quality growth opportunities and providing shareholders with attractive levels of income. In fact, as we highlight in the Portfolio section, CCJI’s portfolio is currently more expensive than its benchmark and has higher quality characteristics while still generating a higher yield.
Given CCJI holds cyclical and less growth-oriented stocks relative to many of its peers, it has been able to produce strong near-term Performance. By capitalising on the tailwinds of the post-pandemic recovery it has outperformed both its peers and benchmark over the last 12 months, and it has also now outperformed its benchmark over the last five years.
CCJI continues to offer investors arguably the most attractive income profile of the AIC Japan sector, with a current yield of 3.1%. As we discuss in the Discount section, CCJI’s yield is not only attractive because of its sector-leading figure but also because of the resilience Japanese companies have displayed in maintaining their dividend payments during the pandemic.
CCJI has also seen its discount narrow in recent months, and currently trades on a 11.1% discount. We cover this in more detail in the Dividend section, where we also outline the recent subscription share offering.
We believe CCJI offers investors an effective balance between growth potential and a compelling dividend. While Richard’s valuation-sensitive approach and avoidance of low-yielding companies prevented him from capitalising on the technology and e-commerce rally that followed the outbreak of the pandemic, we believe his current portfolio may be well positioned to benefit from the post-pandemic recovery. This is due to CCJI holding high-quality cyclical companies while also avoiding the lower-quality end of the cyclical/value names: companies which may have been able to capitalise on the initial vaccine rally but lack the long-term growth potential or stable dividends Richard values.
Regardless of the long-term growth potential CCJI may offer, we remind investors that those looking to access Japanese large-cap equities without compromising on yield may find CCJI to be the only effective option, given its unique status as the sole equity income strategy. This means that CCJI offers income investors a compelling diversification proposition, but also a resilient and consistent source of income thanks to its special reserve and strong underlying revenue.
While CCJI has already seen its discount narrow in recent months, there may be potential for it to narrow further, particularly if it can continue to sustain its recent trend of outperformance. Another potential catalyst could be if Japan’s corporate governance reforms continue to accelerate to the benefit of shareholders, with the forthcoming restructuring of the TOPIX Index being a near-term flashpoint, as we outline in the Portfolio section.
|Potential to outperform thanks to exposure to global recovery
||Valuation sensitivity and income objective may lead to underperformance in a growth-stock rally
|Sector-leading dividend yield
||Structural gearing can enhance losses on the downside
|Although the discount has begun to narrow, it may still reflect a good entry point
||Relatively slow vaccine roll-out may impact Japanese equities in the near term